For the short-run Phillips curve to remain relatively stable, then changes in real GDP must occur primarily as a result of shifts in:
A)changes in aggregate demand.
B)changes in real wages caused by changes in the supply of labor.
C)changes in inflationary expectations.
D)changes in aggregate supply.

Question

For the short-run Phillips curve to remain relatively stable, then changes in real GDP must occur primarily as a result of shifts in:
A)​changes in aggregate demand.
B)​changes in real wages caused by changes in the supply of labor.
C)​changes in inflationary expectations.
D)​changes in aggregate supply.

Quizplus · Accepted Answer

The short-run Phillips curve, which illustrates the inverse relationship between unemployment and inflation, remains relatively stable when changes in real GDP are primarily due to shifts in aggregate demand. This is because shifts in aggregate demand can directly affect inflation and unemployment, the two variables plotted in the Phillips curve, without altering the natural rate of unemployment or the long-run aggregate supply.

For the Short-Run Phillips Curve to Remain Relatively Stable, Then